How much to save for retirement?

You might need 70 – 90% of your pre-retirement income each year during retirement.

Your retirement age, lifestyle choices and retirement expenses all affect how much money you need to save.

Your retirement income may include your employer-based plan, IRAs, Social Security, pensions and personal savings and investments.

Near retirement

The closer you get to retirement, the more important it is to understand how much you need to stay on track — or get back on track toward your retirement goals. The actual amount needed for retirement depends on several variables including your projected standard of living and expenses, how long your retirement might last, and inflation. To cover these retirement needs, you may rely on a combination of savings, investment growth, Social Security and pensions.

In the simplest terms, the amount you still need to save is the difference between how much money you need to live in retirement and how much you expect to have from your savings and other retirement income sources, given your current situation. Arriving at that figure is far from simple, however.

Once you have an idea of how money is needed for retirement, you’ll want to keep close tabs on your progress with a financial advisor, as this may influence your retirement age.

How much money is needed each year during retirement?

You can generally plan on needing 70 – 90% of your pre-retirement income each year of your retirement. To refine that amount, now is a good time to take a look at what you’d like your retirement lifestyle to be and how your retirement expenses might change in retirement, including health care. Make sure to revisit your goals and projections regularly. The closer you get to retirement, the more accurate your income estimate will be.

How much have you already saved?

When you add up your retirement savings, take into consideration your employer-sponsored plan (such as a 401(k) or 403(b)), traditional and Roth IRAs, personal savings and other investments. Remember, it’s never too late to start a saving strategy. If finding all your assets is difficult, consider consolidating accounts or rolling over to an IRA to help you keep organized.

Ideally, your retirement assets will grow from year to year. It’s critical that you continue to invest even in a down market. Keeping the amount you invest consistent throughout natural market cycles, a strategy known as dollar-cost averaging, enables you to buy more shares when the market is down and fewer shares when the market is up. Over time, the average cost of your shares will usually be lower than the average price of those shares.

Dollar cost averaging does not assure a profit or protect against loss. This type of plan involves continuous investment in securities, regardless of fluctuating price levels. Investors should consider their ability to continue purchases through periods of low markets.

How long will you be in retirement?

You can control your retirement age, a decision that has important tax implications for your retirement income. However, beyond taking good care of yourself, you can’t control your longevity. In general, it’s better to plan for a long retirement than a short retirement so that you don’t run out of money. Depending on your retirement age, you may live in retirement for 30 years or more.

If you include Social Security income in your retirement planning, refer to your Social Security benefit statement. Download your statement from the Social Security Administration website at SSA.gov. You may also wish to estimate how much retirement savings you need without Social Security.

Do you have a pension plan?

If you have a pension, it should be taken into account as you calculate how much you will need to retire. You can find out how much you can expect to receive by contacting your HR department. Now is also a good time to talk to your financial advisor about critical decisions regarding your pension pay-out.

How will your retirement investments perform?

The return on your investment portfolio will depend on market performance and inflation, as well as factors such as your asset allocation and diversification. Work with your financial advisor to make sure that your investments are allocated appropriately for your risk tolerance and number of years you have left until retirement. Also remember that you will not stop investing the moment you hit retirement, rather your investments need to continue to work for you throughout retirement.

What if you come up short?

You still have time. Each month, you should be contributing toward your retirement, ideally with both pre-tax and after-tax contribution dollars. Are you contributing as much as you can? Find out how to maximize your savings. You’ll likely need more than one type of savings vehicle. If you are age 50 or older, you may also be eligible to make catch-up contributions to your IRA and employer plan.

While there’s no easy answer to the question of how much you’ll need to retire, it’s important to have a clear idea of where you are headed and how you can get there. An Ameriprise financial advisor can help you evaluate your retirement savings strategy, provide a regular look at how you’re progressing and recommend actions that you may take to keep on track toward retirement.

*Ameriprise helped pioneer the financial planning process more than 30 years ago. Our unique Dream > Plan > Track >® approach is about more than just numbers, it's both science and art. We have more financial planning clients and more CERTIFIED FINANCIAL PLANNER™ professionals than any other company in the U.S. based on data filed at adviserinfo.sec.gov and documented by the Certified Financial Planner Board of Standards, Inc. as of Dec. 31, 2011.